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Currency Swap

A product combining currency spot and currency forward.

A Currency Swap is intended for: 

  • natural persons
  • corporate entities including municipalities
  • Czech nationals and foreigners
  • clients who demand security for currency and interest risk resulting from possible negative development of a specific foreign exchange rate and interest rates

Characteristics of a Currency Swap:

  • A Currency Swap (or also Foreign Exchange Swap) operation is a combination of two transactions: a spot and a forward.
  • This product consists in sale of one currency for another currency with settlement no later than on the spot value date and buyback/resale with settlement on the forward value date.
  • Both transactions are concluded at the same moment.
  • The minimum volume of one transaction is USD 20,000 or the equivalent of this amount in another currency traded on the interbank market.

Risk

  • The potential for profit or loss from transactions denominated in foreign currency is influenced by the movement of foreign exchange rates.
  • In the case of a currency swap, the potential for profit or loss is also influenced by the movement of the interest rates of the swap currencies.
Example of risk
  • A client concluded a Currency Swap with the bank.
  • The risk relates to the forward part of the swap, in which the client sells EUR 1 mil., buys CZK, settlement of the forward part of the swap is in 1 month.
  • Agreed forward rate 27.950.
  • On the settlement date of the forward part of the swap, the current spot rate is 28.000.
  • The client suffered a loss of CZK 50,000.
  • However, if the transaction was concluded for hedging purposes, the client then understands this loss as the cost of hedging. Hedging protects the client against such a significant change in interest rates, which would cause him or her serious financial problems.

Advantages of a Currency Swap concluded at Komerční banka

  • the Currency Swap can be arranged in all currencies stated on the Komerční banka exchange list
  • the transaction is always concluded by telephone with a Client transaction dealer
  • the client receives confirmation of the concluded transaction containing the agreed parameters of the transaction
  • at Komerční banka, a team of experienced professionals is at your disposal; they will propose an optimal strategy and are able to respond flexibly to developments on the market

A Currency Swap allows you to:

  • hedge against both a negative currency market development and a negative interest rate development

How to get a Currency Swap?

  • contact your relationship manager
  • call the free KB Info line on 800 521 521

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